Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
CONSIDER POINT
The definition of a group component is broad. Before concluding that this standard is not applicable,
ensure that a significant component does not in fact exist. A component could result from the entity’s
organizational structure (such as subsidiaries, divisions, branches, joint ventures, or investees accounted
for by the equity or cost methods of accounting) or financial reporting systems organized by function,
product, service, or geographical location.
If a significant component exists, this standard outlines a number of requirements relating <strong>to</strong>:
• Responsibility of the group engagement partner;
• Audit planning and materiality;
• Risk assessment and response;
• Relationships between the group engagement team and component audi<strong>to</strong>rs;
• Nature and extent of communications; and
• Group-wide controls and the consolidation process.
Note: On the assumption that group audits are not that common in the audit of SMEs, the following exhibit
contains only extracts from the many requirements contained in the standard.
Exhibit 15.6-1
Responsibility
600.11
Acceptance/
Continuance and
Planning
600.12-16
Summarized Extracts from the Requirements Section
• The group engagement partner is responsible for the direction, supervision and
performance of the group audit engagement in compliance with professional
standards.
• The audi<strong>to</strong>r’s report on the group financial statements shall not refer <strong>to</strong> a
component audi<strong>to</strong>r.
• The group engagement team shall obtain an understanding of the group, its
components, and their environments that is sufficient <strong>to</strong> identify components
that are likely <strong>to</strong> be significant components.
• The group engagement partner shall agree on the terms of the group audit
engagement.
• The group engagement team shall establish an overall group audit strategy, and
shall develop a group audit plan.
Understanding
the Group, Its
Components and
Their Environments
600.17-18
The group engagement team shall obtain an understanding that is sufficient <strong>to</strong>:
• Confirm or revise its initial identification of components that are likely <strong>to</strong> be
significant; and
• Assess the risks of material misstatement of the group financial statements,
whether due <strong>to</strong> fraud or error.